Buzznet: Celeb site gets worked over

Bambi Francisco Roizen · December 1, 2008 · Short URL: https://vator.tv/n/54a

Venrock's Brian Ascher offers frank advice as our guest host

Now that the presidential elections are over, sites typically devoted to politics, such as Huffington Post, are focusing on accelerating the growth of their celebrity and entertainment news. HuffPost will be yet another contender in the battle for eyeballs interested in celebrity and gossip. It's a very crowded field. There's popular online sites, such as Perezhilton, Yahoo's OMG, and TMZ, as well as traditional rags, such as People and US Weekly, vying for the same audience. The competitive landscape is just one of challenges celebrity and pop culture sites, such as Buzznet, face. Buzznet was the highlighted company of discussion in this Vator Box segment, in which Brian Ascher, venture capitalist of Venrock, was our guest host.

Buzznet, which is backed by Universal and is a pop culture and music social media site, is definitely feeling the pinch. In mid-November, Buzznet laid off 10 employees, more than 10% of its 89-person workforce.

In this segment, Brian and Ezra Roizen (Vator Box regular and digital media investment banker) offered up advice, observations and commentary, including:

- It's unclear whether the company is an advertising network or a content network

- Building multiple brands may be a difficult strategy as building one brand is tough enough

- Traffic numbers appear to be declining this year. And, according to Quantcast, 78% of users are passers-by and 1% are addicts vs. Perezhilton.com, which has 35% passers-by, and 14% addicts

- Having an ad network and a destination site to showcase your advertisers and publishers is a good strategy. But you have to strike a balance between building the publisher brands and going aggressively after advertising dollars

- Combining user-generated-content with professional content is the direction that many media companies are going. The challenge for these hybrid models, however, is that the advertisers still have yet to fully embrace UGC

- The company should consider a catalog, much like People's shopping magazine, which is essentially a catalog showcasing what stars are wearing and where you can buy the products

Now, here's our Liquid Scenarios Minute. (The text below is an exit and liquidity scenario analysis provided by our sponsor Liquid Scenarios)

Buzznet has raised $7 million in its previous rounds and $25 million in its most recent round. Unlike most other venture deals in the past two years, we believe Buzznet is better poised for an IPO rather than an acquisition. Based on the company's most recent financing, it appears that existing venture funds have already earned unrealized appreciation of 4x to 5x their original investment based on Universal's investment in the company this year. The best analog for why, and how Buzznet should wait for a receptive IPO market is a classic brick-and-mortar ad model versus the power of the Internet.

Clear Channel, recently valued at over $23 billion, like Buzznet relies on engaging eyes and ears based on location and preferences. The difference is that for every extra $10 million Clear Channel currently gets in revenue, its market cap actually only gains half that amount, due to an onerous cost structure.

By contrast, if Buzznet's investors can wait until it grows revenue to between $150 million and $200 million, it could potentially end up with a market cap well over $1 billion in the next couple of years. The Buzznet team is only growing in its experience and knowledge of highly-coveted niches, such as gaming and gaming's increasing connection to music monetization, along with social music and video properties acquired, like Idolator, stereogum, Qloud and Absolute Punk. As an investment, Buzznet would work out much better for Universal if it goes public, adding $225 million to its balance sheet almost as much to their 2010 earnings. Venture investors would see top quartile return multiples and founders could liquidate the 10-digit-paper returns they've realized thus far.

That's the Liquid Scenarios' Minute.

(Programming Note: We are now focusing on one company per each Vator Box. Upcoming companies highlighted, in which Venrock's Ascher is our guest host include, Yollege, and Glam Media. Past companies reviewed by Ascher include Lyricfind and Glam Media. Be sure to check in to see when those episodes go up. And, our upcoming guest hosts include Google's Marissa Mayer, EBay's head of M&A, Erik Stuart, and Zynga founder and CEO Mark Pincus)

Bambi Francisco Roizen

Founder and CEO of Vator, a media and research firm for entrepreneurs and investors; Managing Director of Vator Health Fund; Co-Founder of Invent Health; Author and award-winning journalist.

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